POL00448893
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POST OFFICE LIMITED
BOARD REPORT
Title: Funding Update Meeting Date: I 7 December 2020
. 7 Al Cameron - Group Chief
er Spel Finance Officer _I
Input Sought
The purpose of this paper is to update the Board on our funding position and the advice from
Smith & Williamson. The Board is asked to support the proposed way forward.
Executive Summary
We continue to believe that HMT supports POL and there is no intention for us to become
insolvent.
The decision regarding the de minimis payments has been delayed. A decision on a funding
guarantee is not expected until early February. Nick is meeting the Permanent Secretary on
Tuesday and we should seek a further meeting with the Minister. If no payments can be made
until February, the Board should consider how we best manage HSS and how we should
communicate the delay.
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resolution. We will continue to seek te clarity.) _IRRELEVANT _
Smith & Williamson support the areas we are working on and their recommendations are
e Weare working wit!
e They have advised that the directors take legal advice separate from POL. Previously the
Board members did not feel the need to take that additional step after receiving the
Linklaters advice. However, if desired by Board members in respect of their personal
positions, one approach would be for Linklaters to share their advice for comment and
challenge with an alternative Firm retained by the directors in their personal capacities.
The Report
Context
The Board has recognised that
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The Board has been closely monitoring our financial viability, seeking to take all reasonable
steps to ensure that we do not risk wrongful trading or preferential payments. Advice has been
received from Linklaters.
Steps include:
« Seeking to sell the Telco business
¢ Seeking funding clarity on both BAU and HSS
« Seeking Government intention to support POL through compensation claims arising from
the criminal appeals
e Managing our results, limiting spend and forecasting on a continual basis.
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n the Chairman’s letter to the Minister at the end of October and again
S case, we have shared our understanding, both that “there is no intention
for IRRELEVANT. "and that “The historical claims from Postmasters
should ‘follow due process and eligible claims should be met.”
At no stage have these statements been questioned and indeed we have heard statements to
the effect that HMG recognises that it will have to provide funding for BAU, HSS and post-
criminal claims.
What has changed?
HSS and De Minimis Payments
The Board continues to believe that a viable HSS is the best option for the business and its
shareholder. The alternative of a second group litigation is likely to take longer and be more
expensive. It will also be a promise broken and attract public criticism.
The Board has approved making the first payments to increase the chances that the scheme
will prove a viable alternative to litigation. These are de minimis payments, less than £8k each,
where the cost of investigation is disproportionate to the value of the claim.
The Chairman wrote to the Minister on 30 November, saying: “we understand that you are supportive
of making the de minimis payments based on our confidence in support from Government..... To the extent that you
believe our understanding to be incorrect then please let us know by 5pm on 3 December 2020. Otherwise, we will
start sending out offer letters before 11 December.”
We heard on 3™ December from Carl Cresswell that we should not proceed. Officials have
unresolved concerns which they have advised to the Minister. These are, we understand,
focused on the precedent setting nature of the interest element of the de minimis payments.
The fact that the claims involved interest was set out in the Board paper on 2 October, which
the HMBU considered sufficient. As this pre-dated the discussions of controls and precedent
setting, none of us joined the dots. Nick and I became aware of the issue on 27'" November
and flagged it to UKGI and BEIS because we did consider it both precedent setting and material.
Nick has a meeting with the Permanent Secretary on 8'* December and we will seek an
additional call with the Minister to seek support for some payments. Would it be possible to
make the payments without interest?
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The HSS Timetable
UKGI has told us that the HMG approval process for an HSS funding guarantee is expected to
last until the first week in February.
If the de minimis offers are agreed, to maintain momentum we may wish to seek support for
a further set of offer letters to go out in January.
If no payments are agreed, the Board should consider how best we manage HSS and
communicate the delay and the reasons for it.
Our forecasts
We have shared with the Board the last forecast which showed the following:
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Lenn “IRRELEVANT. "We
What is our new, expected forward timetable?
Net Liabilities, retrospective and prospective
AS- noted above...we..ma’
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Both prospectively and in finalising our ARA for 2019-20, we have to consider whether any
assets need to have their values impaired, in particular as a result of the CV-19 impact on
trading. This seems likely in the case of our acquired Insurance business and is unlikely in the
case of FRES. We are also keeping an eye on GE decisions about hard to place branches which
could create the need for a different level of provision for Postmaster compensation. These
issues will be agreed with PwC and the ARC.
The most material issue is the nature of any net provision for HSS compensation. We are
expecting to validate the HSF forecasts with the early panel recommendations in January. The
value of the gross provision and the need to reflect that provision in the 2019-20 accounts have
been well flagged and should be agreed at the ARC on 26" January. Any provision will be
recognised in our management accounts from end January.
Prospectively therefore, we should have a good view when we finalise the January management
accounts in early February. We should also know at that point what if any provision should be
taken back into the March 2020 balance sheet and whether that {
that date. .
Security Headroom
The forecasts { 5
also, IRRELEVANT
As a result, while I
We have started the discussion with BEIS on the renewal for 2021-22. The Treasury team has
identified and shared some uncertainty around how closely the way we do the calculations
matches the original wording of th are in any case different between the
Working Capital Facility and the __I These issues have clearly been the
subject of past discussions as the reporting was aligned. No concerns were raised when the
waivers were granted earlier in the year. Our auditors have worked on the way we do things
and have not flagged issues for some years.
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Clarity on Funding
As set out above, we expect clarity on BAU and HSS funding, the 2021-22 contract and any
wording of comfort around the criminal compensation to be available by early February.
Annual Report & Accounts
We will have an ARC review of issues like HSS provisions on 26"* January. As funding will not
be clear at that point, we will arrange a further ARC for the middle of February where we will
seek to finalise going concern and related issues, together with the final wording on the
litigations, and on the solvency of the business. We hope to sign and publish the ARA in
February.
Talking to third parties
We have a standard
ie funding situation
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I have a briefing call booked with Sarah John, the Chief Cashier at BoE, on 10% December.
Initially
Banks have signalled their willingness to support us in this way. However, this is the worst time.
ask and I have some nervousness whether we can deliver.: RELEVANT H
We could leave it until January for further conversations. There has been ir
Alternatively, given the relationship, we could talk to them before Christmas. A very matter-
of-fact signalling by the Treasury team, noting where we are on funding, contingencies, the
possibility of net liabilities and sharing the calculation questions might be appropriate, with an
offer of a general update with the CFO.
If the Board has strong guidance, it would be appreciated.
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We will keep a timetable under review but it is unlikely to be before mid-January and may be
-later..We have. sianalled the. issue to the Commercial team. Their.aeneral_reaction.is that the,
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Smith & Williamson Review
We agreed to fund an independent, third party review of our financial position and forecasts to
make sure that we hadn’t missed any key information or actions.
The report was shared with the Board on 3" December, with consistent covering notes provided
by Carla and I. This was a helpful exercise and demonstrated that we were managing the right
issues. All of the workstreams were already underway. Carla’s summary was: “In addition to
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